On March 29, 2021, the U.S. District Court for the Eastern District of Pennsylvania granted a defendant-employer’s motion for summary judgment on a SOX whistleblower retaliation claim, holding that the plaintiff lacked an objectively or subjectively reasonable belief that the company violated any law enumerated in Section 806 of SOX.  Ngai v. Urban Outfitters, Inc., No. 19-cv-1480.

Background

Plaintiff, a Director of Sourcing and Technical Design, was responsible for ensuring that overseas factories properly executed apparel designs while minimizing production expenses.  He was required to ensure that factories were limiting waste and competitively pricing material, labor, and other costs.

Plaintiff claimed that throughout his employment, he reported general allegations of corporate waste and improper conduct by some of the company’s outside vendors and manufacturers.  Specifically, he complained that outside contractors were being wasteful, overcharging, self-dealing, inflating production costs, creating conflicts of interest within the company’s supply chain, and paying kickbacks to executives to secure high volume orders in violation of the company’s policies and Code of Conduct.  Plaintiff initially voiced his concerns directly to his supervisors, and then in April 2018 hired a lawyer, who sent over 20 letters to the company outlining Plaintiff’s concerns.  The company terminated Plaintiff’s employment in September 2018 and Plaintiff subsequently filed suit alleging, among other claims, that his employment was terminated in retaliation for his complaints.

Ruling

The Court held that Plaintiff failed to establish that he had a subjectively or objectively reasonable belief that the company engaged in conduct covered by SOX.  Plaintiff failed to prove that he had a subjectively reasonable belief of a violation because the record showed that he personally believed he was reporting violations of company policies, as opposed to violations of the federal statutes covered by SOX.  The court said that while there is no need to “ring the bell” on each element of a law covered by SOX when making a complaint, a plaintiff needs to show more than a “veiled reference” to unspecified legal violations, especially where, as here, the plaintiff sent over 20 letters memorializing his allegations.

The court also held that Plaintiff failed to show an objectively reasonable belief that he was reporting violations covered by SOX.  Relying on the Third Circuit’s decision in Wiest v. Lynch (see our post on that case here), the court held that Plaintiff failed to show that his belief that the company was committing one of the enumerated forms of fraud was objectively reasonable in light of the fact that Plaintiff’s primary job was to increase efficiencies and reduce costs.  The court ruled that an objectively reasonable person with Plaintiff’s background and job responsibilities would not believe a failure to root out misconduct by outside vendors constituted bank, wire, or securities fraud, or a violation of SEC rules.

Implications

This decision underscores the need for a purported SOX whistleblower to hold a belief of a violation of one of the provisions enumerated in SOX that is both subjectively and objectively reasonable.

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Photo of Steven J. Pearlman Steven J. Pearlman

Steven J. Pearlman is a partner in the Labor & Employment Law Department, where he is Head of the Restrictive Covenants, Trade Secrets & Unfair Competition Group and Co-Head of the Whistleblowing & Retaliation Group.

Employment, Whistleblower, Restrictive Covenant and Trade Secret Practice.

Steven J. Pearlman is a partner in the Labor & Employment Law Department, where he is Head of the Restrictive Covenants, Trade Secrets & Unfair Competition Group and Co-Head of the Whistleblowing & Retaliation Group.

Employment, Whistleblower, Restrictive Covenant and Trade Secret Practice. Steven’s national practice focuses on defending companies in federal and state courts and arbitration against claims of: discrimination, retaliation and harassment, including claims brought by high-level executives; whistleblower retaliation; restrictive covenant violations; theft of trade secrets; and wage-and-hour violations (including class, collective and PAGA actions).

Illustrating his versatility, Steven has successfully handled bench and jury trials in multiple jurisdictions (e.g., Illinois, California, Florida and Texas); defended one of the largest Illinois-only class actions in the history of the federal courts in Chicago; and prevailed following his oral arguments before the Seventh Circuit and state appellate courts. Steven brings his litigation experience to bear in counseling clients to minimize risk and avoid or prepare for success in litigation.

Investigations. Reporting to boards of directors, their audit committees, CEOs and in-house counsel, Steven conducts sensitive investigations and has testified in federal court. His investigations have involved complaints of sexual harassment involving C-suite officers; systemic violations of employment laws and company policies; and fraud, compliance failures and unethical conduct.

Thought Leadership and Accolades. Steven was named Lawyer of the Year for Chicago Labor & Employment Litigation in the 2023 edition of The Best Lawyers in America. He was also named as One of the Top 10 Impactful Labor & Employment Lawyers in Illinois for 2023 by Business Today. He is a Fellow of the College of Labor and Employment Lawyers. Chambers describes Steven as an “outstanding lawyer” who is “very sharp and very responsive,” a “strong advocate,” and an “expert in his field.” Chambers also reports that “He is someone who can navigate the twists and turns of litigation without difficulty. Steven is great with brief-writing, crafting arguments, and making sure the client is always happy.”

Steven was 1 of 12 individuals selected by Compliance Week as a “Top Mind.” Earlier in his career, he was 1 of 5 U.S. lawyers selected by Law360 as a “Rising Star Under 40” in the area of employment law and 1 of “40 Illinois Attorneys Under Forty to Watch” selected by Law Bulletin Publishing Company. Steven is a Burton Award Winner (U.S. Library of Congress) for “Distinguished Legal Writing.”

Steven was appointed to Law360’s Employment Editorial Advisory Board and selected as a Contributor to Forbes.com. He has appeared on Bloomberg News (television and radio) and Yahoo! Finance, and is often quoted in leading publications such as The Wall Street Journal.

The U.S. Chamber of Commerce has engaged Steven to serve as lead counsel on amicus briefs to the U.S. Supreme Court and federal circuit courts of appeal. He was appointed to serve as a Special Assistant Attorney General for the State of Illinois in employment litigation matters. He has presented with the Solicitor of the DOL, the Acting Chair of the EEOC, an EEOC Commissioner, Legal Counsel to the EEOC, and heads of the SEC, CFTC and OSHA whistleblower programs. He is also a member of the Sedona Conference, focusing on trade secret matters.

In 2024, Steven received the Excellence in Pro Bono Service Award from the United States District Court for the Northern District of Illinois and the Chicago Chapter of the Federal Bar Association.

Photo of Pinchos Goldberg Pinchos Goldberg

Pinny Goldberg is a senior counsel in the Labor & Employment Law Department and a member of the Whistleblowing & Retaliation and Wage & Hour Practice Groups.

Pinny represents employers in a broad array of matters before federal and state courts, FINRA and…

Pinny Goldberg is a senior counsel in the Labor & Employment Law Department and a member of the Whistleblowing & Retaliation and Wage & Hour Practice Groups.

Pinny represents employers in a broad array of matters before federal and state courts, FINRA and other arbitration panels, and administrative agencies, including the EEOC and its state equivalents, and in pre-litigation negotiations. Matters he works on include discrimination and harassment, whistleblowing and retaliation, wage and hour, covenants not to compete, and tort and contract claims.

As an experienced trial lawyer, Pinny has successfully litigated numerous cases from complaint through jury verdict or arbitral award. Notably, Pinny served as trial counsel to King & Spalding LLP in a widely publicized wrongful termination lawsuit brought by a former associate in which the jury returned a complete defense verdict on the seventh day of trial.

In addition to handling litigation and dispute resolution, Pinny regularly advises clients on a wide variety of employment issues, including drafting, reviewing and revising handbooks and workplace policies. He also addresses questions and concerns related to hiring, wage and hour issues, employee leave, performance problems, terminations of employment, and separation agreements and releases.

Pinny represents employers across a broad range of industries, including financial services, insurance, law firms, media and entertainment, professional sports, and higher education.

In addition to his active practice, Pinny serves as an editor for the Proskauer Whistleblower Defense Blog and Proskauer on Trade Secrets Blog. He is also a regular author of “Expert Analysis” articles for Law360.

While in law school, Pinny served as an editor for the Cardozo Law Review.